nep-ino New Economics Papers
on Innovation
Issue of 2005‒02‒13
eighteen papers chosen by
Koen Frenken
Universiteit Utrecht

  1. Knowledge Disclosure, Patents and Optimal Organization of Research and Development By Bhattacharya, Sudipto; Guriev, Sergei
  2. Does Microsoft Stifle Innovation? Dominant Firms, Imitation and R&D Incentives By Cabral, Luís M B; Polak, Ben
  3. Determinants of International Activity: Evidence from the Chemical Industry By Fosfuri, Andrea
  4. Intellectual Property and Standardization Committee Participation in the US Modem Industry By Gandal, Neil; Gantman, Nataly; Genesove, David
  5. Platform Competition in Telecommunications By Church, Jeffrey; Gandal, Neil
  6. Can Venture Capital Funds Pick Winners? Evidence from Pre-IPO Survival Rates and Post-IPO Performance By Ber, Hedva; Yafeh, Yishay
  7. Industry/University S&T Transfers: What Can We Learn From Belgian CIS-2 Data? By Capron, Henri; Cincera, Michele
  8. Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab By Griffith, Rachel; Redding, Stephen; Simpson, Helen
  9. How Special is the Special Relationship? Using the Impact of US R&D Spillovers on UK Firms as a Test of Technology Sourcing By Griffith, Rachel; Harrison, Rupert; Van Reenen, John
  10. To What Extent Should Less-Developed Countries Enforce Intellectual Property? By Saint-Paul, Gilles
  11. The impact of technological and organizatioanl changes on labor flows. Evidence on French establishments By Philippe, ASKENAZY; Eva, MORENO-GALBIS
  12. The Financing of Innovation: Learning and Stopping By Dirk Bergemann; Ulrich Hege
  13. Smart business networks: architectural aspects and risks By Pau, L-F.
  14. Regulating Between National Fears and Global Disciplines: Agricultural Biotechnology in the EU By Gregory Shaffer; Mark Pollack
  15. Estimating the Impact of Medical Innovation: The Case of HIV Antiretroviral Treatments By Mark G. Duggan; William N. Evans
  16. The Cost of US Pharmaceutical Price Reduction: A Financial Simulation Model of R&D By Thomas A. Abbott; John A. Vernon
  17. When subsidized R&D-firms fail, do they still stimulate growth? Tracing knowledge by following employees across firms By Jarle Møen
  18. Heterogeneity, productivity and selection: an empirical study of Norwegian manufacturing firms By Tor Jakob Klette and Arvid Raknerud

  1. By: Bhattacharya, Sudipto; Guriev, Sergei
    Abstract: We develop a model of two-stage cumulative research and development (R&D), in which one Research Unit (RU) with an innovative idea bargains to license her non-verifiable interim knowledge exclusively to one of two competing Development Units (DUs) via one of two alternative modes: an open sale after patenting this interim knowledge, or a closed sale in which precluding further disclosure to a competing DU requires the RU to hold a stake in the licensed DU’s post-invention revenues. Both modes lead to partial leakage of the RU’s knowledge from its description, to the licensed DU alone in a closed sale, and to both DUs in an open sale. We find that higher levels of interim knowledge are more likely to be licensed via closed sales. If the extent of leakage is lower, more RUs choose open sales, generating a non-monotonic relationship between the strength of Intellectual Property Rights (IPR) and aggregate R&D expenditures. We also develop a rationale for the ex ante acquisition of control rights over the RU by a DU, rooted in the RU’s incentives to create knowledge under alternative modes of sale thereof, and her wealth constraint in ex interim bargaining.
    Keywords: corporate venturing; patents; research and development; sequantial innovation
    JEL: D23 O32 O34
    Date: 2004–08
  2. By: Cabral, Luís M B; Polak, Ben
    Abstract: We provide a simple framework to analyse the effect of firm dominance on incentives for R&D. An increase in firm dominance, which we measure by a premium in consumer valuation, increases the dominant firm's incentives and decreases the rival firm's incentives for R&D. These changes influence the probability of innovation through two effects: changes in total R&D effort and changes in how this total is distributed between the two firms. For a given level of total research effort, the shift from the rival firm to the dominant firm is a good thing as it decreases the likelihood of duplicate innovation (we call this the duplication effect). The shift in research effort is not one-to-one, however. The dominant firm's benefit from increased dominance is more inframarginal than marginal when compared to the rival firm's disincentive. As a result, total research effort decreases when firm dominance increases (we call this the total effort effect). We show the total effort effect dominates the duplication effect when intellectual property protection is weak, and the opposite when property rights are strong. That is, firm dominance is good for innovation when (but only when) property rights are strong. We also examine consumer and social surplus.
    Keywords: dominant firm; imitation; innovation; R&D
    JEL: L13 L41 O31
    Date: 2004–08
  3. By: Fosfuri, Andrea
    Abstract: This Paper empirically investigates two important determinants of international activity through wholly owned operations, joint-ventures and licensing, namely country risk and IPRs protection. Using a comprehensive database on investments in chemical plants during the period 1981-96, we show that higher levels of country risk are associated with less activity into recipient economies. The analysis also suggests that international activity with smaller resource commitment tends to be preferred in countries with higher levels of risk, and that multinational investment is more responsive to changes in risk conditions than indigenous investment. After controlling for several country characteristics, we do not find IPRs protection playing a significant role in fostering international activity or conditioning its mode.
    Keywords: chemical industry; country risk; foreign direct investment; IPRs protection; technology licensing
    JEL: F21 F23 O32 O34
    Date: 2004–09
  4. By: Gandal, Neil; Gantman, Nataly; Genesove, David
    Abstract: The authors take a preliminary look at the interaction between patenting and standardization committee participation in the US modem industry. Both involve a much wider set of firms than the downstream modem manufacturers themselves. Not surprisingly, the two activities are highly correlated across firms. Using five-year periods, Granger causality tests show that while patenting is predicted by participation in earlier standardization meetings, meetings participation is not predicted by earlier patenting. The authors interpret these results as reflecting the timing of standard setting relative to innovation.
    Keywords: modems; patenting; standardization committee participation
    JEL: L13 L86
    Date: 2004–10
  5. By: Church, Jeffrey; Gandal, Neil
    Abstract: In this Paper we consider the economics of platform competition in telecommunications. Platform competition occurs when different, sometimes incompatible, technologies compete to provide telecommunications services to end-users. Battles between competing technologies have been an important feature of telecommunications in the last twenty or so years. Examples of platform competition in telecommunications include wireless vs. wireline networks, competing wireless options, such as satellite vs. cellular, and, within cellular, different digital standards.
    Keywords: platform competition; telecommunications
    JEL: L13
    Date: 2004–10
  6. By: Ber, Hedva; Yafeh, Yishay
    Abstract: This Paper evaluates the ability of venture capital funds to identify and bring to market successful high-tech Israeli companies during the period 1991 to 2000. Using a newly constructed and highly detailed database we find that: (1) The probability of survival until the IPO stage is higher for venture-backed companies. (2) According to several different measures, conditional on making an IPO, the post-listing performance of venture-backed companies is not statistically different from that of non-venture companies throughout the 1990s. We interpret this as evidence that an important contribution of the venture capital industry may be in increasing the survival rates of young technology-intensive firms, rather than in identifying high performers.
    Keywords: IPO; long-run performance; survival rate; venture capital
    JEL: G20 G30
    Date: 2004–10
  7. By: Capron, Henri; Cincera, Michele
    Abstract: The second European Innovation Survey (CIS-2) provides information about different modes of interactions between innovative firms and other research institutions, in particular universities. These data are exploited to estimate an ordered probit model with sample selection of the role played by universities and other partners as a main source of new ideas for firms innovation activities as well as a GHK triprobit model to explore the role of firm and industry characteristics on formal and informal collaborative agreements between firms, universities and other research partners. The results suggest that the factors explaining the use of a particular source of information are not the same according to the type of sources. In a same vein, the determinants of industry collaborations with universities have a different impact when other partners are considered.
    Keywords: Belgian CIS-2; industry-university collaborations; innovation
    JEL: O32
    Date: 2004–11
  8. By: Griffith, Rachel; Redding, Stephen; Simpson, Helen
    Abstract: This Paper examines the relationship between foreign ownership and productivity, paying particular attention to two issues neglected in the existing literature – the role of multinationals in service sectors and the importance of R&D activity conducted by foreign multinationals. We review existing theoretical and empirical work, which largely focuses on manufacturing, before presenting new evidence using establishment-level data on production, service and R&D activity for the United Kingdom. We find that multinationals play an important role in service sectors and that entry of foreign multinationals by takeover is more prevalent than greenfield investment. We find that British multinationals have lower levels of labour productivity than foreign multinationals, but the difference is less stark in the service sector than in the production sector, and that British multinationals have lower levels of investment and intermediate use per employee. We also find that foreign-owned multinationals conduct a substantial amount of UK R&D. We discuss the implications of these and other findings for the policy debate on incentives to influence multinational firms’ location choices.
    Keywords: foreign investment; knowledge spillovers; productivity
    JEL: F23 L60 L80 O47
    Date: 2004–10
  9. By: Griffith, Rachel; Harrison, Rupert; Van Reenen, John
    Abstract: How much does US-based R&D benefit other countries and through what mechanisms? We test the ‘technology sourcing’ hypothesis that foreign research labs located on US soil tap into US R&D spillovers and improve home country productivity. Using panels of UK and US firms matched to patent data we show that UK firms who had established a high proportion of US-based inventors by 1990 benefited disproportionately from the growth of the US R&D stock over the next 10 years. We estimate that UK firms’ Total Factor Productivity would have been at least 5% lower in 2000 (about $14bn) in the absence of the US R&D growth in the 1990s. We also find that technology sourcing is more important for countries and industries who have ‘most to learn’. Within the UK, the benefits of technology sourcing were larger in industries whose TFP gap with the US was greater. Between countries, the growth of the UK R&D stock did not appear to have a major benefit for US firms who located R&D labs in the UK. The ‘special relationship’ between the UK and the US appears distinctly asymmetric.
    Keywords: international spillovers; patents; productivity; R&D; technology sourcing
    JEL: F23 O32 O33
    Date: 2004–10
  10. By: Saint-Paul, Gilles
    Abstract: This Paper discusses a number of issues in the context of the debate on intellectual property in less developed countries (LDCs). It starts by discussing the consequences of IP enforcement in LDCs for global innovation and welfare in poorer countries. It then considers the costs and benefits of IP enforcement for a small, open LDC, abstracting from global issues. Finally, it discusses the protential merits of an industrial policy based on open source software. The analysis suggests that the view that it is best for LDCs to free-ride on the global IP regime is overblown.
    Keywords: comparative advantage; growth; innovation; intellectual property; piracy
    JEL: F12 F13 O30 O34
    Date: 2004–10
  11. By: Philippe, ASKENAZY (CNRS AND CEPREMAP, Paris); Eva, MORENO-GALBIS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper investigates the effect of organizational and technological changes on job stability of different occupations in France. We first develop a basic matching model with endogenous job destsruction. It provides a structure to the empirical analysis, where we extensively exploit a unique data set on a representative sample of French establishments. The adoption of information technologies is positively correlated to labor flows of blue collar workers while most of the new workplace organizational practices positively influence the managers’ turnover.
    JEL: J23 J41 J63 L23 O33
    Date: 2004–10–15
  12. By: Dirk Bergemann (Yale University); Ulrich Hege (ESSEC Business School, CEPR)
    Abstract: This paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success. We distinguish between two financing modes, namely relationship financing, where the allocation decision of the entrepreneur is observable, and arm's length financing, where it is unobservable. We find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes. The rate at which funding is released becomes tighter over time under relationship financing, and looser under arm's length financing. The trade-off in the choice of financing modes is between lack of commitment with relationship financing and information rents with arm's length financing.
    Keywords: Innovation, venture capital, relationship financing, arm's length financing, learning, time-consistency, stopping, renegotiation-proofness
    JEL: D83 D92 G24 G31
    Date: 2001–02
  13. By: Pau, L-F. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: This paper summarizes key attributes and the uniqueness of smart business networks [1], to propose thereafter an operational implementation architecture. It involves, amongst others, the embedding of business logic specific to a network of business partners, inside the communications control networks .It also involves the definition of business protocols between these partners and the joint management of some common functions relying on open networking standards. This implies some key paradigm changes, both of a technical and of a business nature, which are offered here for discussion via a set of propositions.
    Keywords: smart business networks;control networks;SS7;P1520;business protocols;network architecture;mobile business;service level agreements;
    Date: 2004–12–01
  14. By: Gregory Shaffer; Mark Pollack
    Abstract: In this paper, we develop three interrelated arguments about the nature of GMO regulation and the challenges that it poses to the European Union (EU). First, we highlight the inherently multi-sectoral nature of GMO regulation, which links together the internal market with industrial policy, research and technological development, environmental policy, food safety, agriculture, and international trade. As a multi-sectoral issue, the regulation of GMOs raises the challenge of coordinating policymaking horizontally among a large number of public and private actors with diverse perspectives about the aims and the content of EU regulation. Second, we emphasize the multi-level nature of the process, which involves overlapping and sometimes conflicting regulations promulgated at the national, supranational/EU, and international levels. As such, EU policy has faced sharp political and legal challenges both from below (in the form of national revolts against the licensing of individual GM foods and crops) and from above (in the form of challenges from other countries within the World Trade Organization, or WTO). Third, the regulation of GM foods and crops is an instance of a broader category of “risk regulation,” in which government actors are called upon to adopt regulations about the acceptable degree of risk posed to society by products or industrial processes. Such decisions about risk regulation – including the regulation of GMOs – not only mobilize diverse interest groups, they also raise fundamental normative questions about the degree of risk judged to be acceptable to society, as well as about the roles of science and politics in the regulation of risk under uncertainty. As such, risk regulation raises fundamental questions of the legitimacy of decision-making at different levels of government, and, in particular, for our case, at the supranational level of EU institutions.
    Date: 2004–12–12
  15. By: Mark G. Duggan; William N. Evans
    Abstract: In 1995 AIDS was the eighth-leading cause of death in the U.S. and the leading cause among men between the ages of 25 and 44. During the next three years the number of deaths among individuals with HIV/AIDS in the U.S. declined by nearly 70 percent. In this paper, we use data for the 1993-2003 period for a sample of more than 10,000 Medicaid recipients from the state of California and diagnosed with HIV/AIDS to estimate the contribution of HIV antiretroviral treatments (ARVs) to this decline and their corresponding effect on long-term health care spending. The Medicaid population is a natural one to consider given that approximately half of all AIDS patients in the U.S. are enrolled in this program. Using the detailed information on health care utilization in our claims data, we account for the fact that patients taking ARVs are significantly less healthy than the average patient in our sample. Our findings demonstrate that the increase in the use of four drugs approved by the FDA in late 1995 and early 1996 was responsible for more than 90 percent of the drop in the mortality rate from 1995 to 1998. Despite the entry of more than a dozen drugs since these four, mortality rates have remained virtually unchanged. We find that the use of the new drugs led to a threefold increase in lifetime Medicaid spending due to their high cost and the resulting increase in life expectancy. Despite this, the new treatments were costeffective, with the average additional cost in Medicaid spending per life-year saved equal to $23,000.
    JEL: H51 I12 I18
    Date: 2005–02
  16. By: Thomas A. Abbott; John A. Vernon
    Abstract: Previous empirical studies that have examined the links between pharmaceutical price controls, profits, cash flows, and investment in research and development (R&D) have been largely based on retrospective statistical analyses of firm- and/or industry-level data. These studies, which have contributed numerous insights and findings to the literature, relied upon ad hoc reduced-form model specifications. In the current paper we take a very different approach: a prospective micro-simulation approach. Using Monte Carlo techniques we model how future price controls in the U.S. will impact early-stage product development decisions in the pharmaceutical industry. This is done within the context of a net present value (NPV) framework that appropriately reflects the uncertainty associated with R&D project technical success, development costs, and future revenues. Using partial-information estimators calibrated with the most contemporary clinical and economic data available, we demonstrate how pharmaceutical price controls will significantly diminish the incentives to undertake early-stage R&D investment. For example, we estimate that cutting prices by 40 to 50 percent in the U.S. will lead to between 30 to 60 percent fewer R&D projects being undertaken (in early-stage development). Given the recent legislative efforts to control prescription drug prices in the U.S., and the likelihood that price controls will prevail as a result, it is important to better understand the firm response to such a regulatory change.
    JEL: I1 L1 L2 L5
    Date: 2005–02
  17. By: Jarle Møen (Statistics Norway)
    Abstract: Public R&D subsidies aim to target particularly risky R&D and R&D with large externalities. One would expect many such projects to fail from a commercial point of view, but they may still produce knowledge with social value. Such knowledge is likely to be embodied in workers or teams of workers. I utilize a large matched employer-employee data set and test for knowledge diffusion from subsidised technology firms transmitted through the labor market. The specific case analysed is a series of Norwegian IT-programs so far considered unsuccessful, but which have been linked to the rise of a new generation of successful IT-firms. It has been argued that know-how and networks built up in leading companies during the programs still `fertilize' the IT-industry even though many of the companies have exited. I find limited support for this claim. On the positive side, the market value of work experience from subsidized firms does not seem to have been reduced by the fact that the firms did not succeed commercially, but workers from subsidized firms have not outperformed similar workers without this experience, either. Furthermore, firms that are spin-offs from formerly subsidized firms seem to perform below, rather than above average.
    Keywords: R&D-subsidies; Knowledge spillovers; Human capital; Labor mobility; Displaced workers; Spin-off firms; IT-industry; Program evaluation; Matched employer-employee data
    JEL: J24 J31 J62 O32
    Date: 2004–12
  18. By: Tor Jakob Klette and Arvid Raknerud (Statistics Norway)
    Abstract: How do firms differ, and why do they differ even within narrowly defined industries? Using evidence from a new panel data set for four high-tech, manufacturing industries covering a 10-year period, we show how differences in sales, materials, labor costs and capital across firms can be summarized by firm-specific, dynamic factors, which we interpret in view of a structural model. The model contains the complete system of supply and factor demand equations. Our results show that a firm's efficiency is strongly linked to profitability and firm size, but only weakly related to labor productivity. Our second task is to understand the origin and evolution of the differences in efficiency. Among the firms established within the 10-year period that we consider permanent differences in efficiency dominate over differences generated by firm-specific, cumulated innovations.
    Keywords: efficiency; firm heterogeneity; labor productivity; permanent differences; firm-specific innovations; attrition; maximum likelihood
    JEL: C33 C51 D21
    Date: 2005–01

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